KUALA LUMPUR (July 17): Rakuten Trade Sdn Bhd raised its year-end target for the benchmark FBM KLCI to 1,730 points (from 1,660 previously), driven by an influx of foreign direct investment (FDI) in data centres, improved corporate earnings and domestic liquidity.

The news of around RM80 billion in data centre-related FDI flowing into the country is well documented, and supports Malaysia's marketing efforts. Further, the government's request for government-linked investment companies (GLICs) to reduce overseas investments and focus more on the domestic market acts as a significant catalyst for the local bourse, said Rakuten head of research Kenny Yee Shen Pin. 

It is estimated that the top six GLICs collectively manage close to RM1.9 trillion. Assuming 10% to 15% of this amount is invested in foreign equities, a 10% "clawback" of the foreign portion could bring approximately RM20 billion to RM30 billion back into the local market, Yee said.

“We notice trading volume has improved of late, and may be a prelude to an exciting development within the local stock market. We reckon both local institutions and foreign funds are already taking the lead to improve market velocity. The year-to-date average daily volume of 4.6 billion shares has surpassed the 10-year average of 3.8 billion shares,” said Yee.

“Though foreign investors lack the staying power primarily affected by ongoing interest rates drama and geopolitical tension, we are adamant that the recent news flow is enough reason to maintain foreign funds with more staying power,” he told reporters during a virtual media briefing on Rakuten's market outlook for the third quarter of 2024.

Rakuten projects corporate earnings to experience a 16.1% growth this year. 

Asked whether the Malaysian market will be affected by the US presidential election scheduled for November, Yee said, "The local market has outperformed. While we are enjoying this uptrend at the moment, nobody truly knows what will happen post-elections."

The KLCI had climbed 10.66 points or 0.66% to reach 1,636.62 as of 11.32am on Wednesday. Year-to-date, the index has surged by over 10%, compared to Japan at 15.6%, Vietnam (13.2%), India (6.9%), Hong Kong (5.9%), and Singapore (1.9%).

Rakuten equity research vice-president Thong Pak Leng named RHB Bank Bhd (KL:RHBBANK), Malayan Banking Bhd (KL:MAYBANK), CIMB Group Holdings Bhd (KL:CIMB) and Alliance Bank Malaysia Bhd (KL:ABMB) as its top picks in the banking sector for their solid dividend yields, and Hong Leong Bank Bhd (KL:HLBANK) and Public Bank Bhd (KL:PBBANK) for potential upsides. 

“We continue to like the banks given their strong fundamentals, dividend yields and earnings growth. Loan growth this year is projected to be solid, within the 5.5%-6.0% range, while net interest margins will remain stable for the year, amid a more stable interest rate regime,” he said. 

For the construction sector, Rakuten favours Gamuda Bhd (KL:GAMUDA), Sunway Construction Group Bhd (KL:SUNCON), Kerjaya Prospek Group Bhd (KL:KERJAYA), WCT Holdings Bhd (KL:WCT) and Kimlun Corp Bhd (KL:KIMLUN). The sector has seen a surge in private-sector projects, including data centres and the RM10 billion Mutiara Line, along with major public infrastructure projects like the RM45 billion Mass Rapid Transit 3, Pan Borneo Highway Sarawak Phase 2, Pan Borneo Highway Sabah Phase 1B, and the Penang Transport Master Plan. 

On power and utilities, Rakuten’s top picks are Tenaga Nasional Bhd (KL:TENAGA), YTL Power International Bhd (KL:YTLPOWR), Gas Malaysia Bhd (KL:GASMSIA), Makakoff Corp Bhd (KL:MALAKOF), Samaiden Group Bhd (KL:SAMAIDEN) and Solarvest Holdings Bhd (KL:SLVEST). “We continue to like the sector for its earnings defensiveness, which is backed by resilient earnings from regulated assets, with a decent dividend yield of between 3% and 6%,” said Thong. 

On technology, Rakuten’s top picks are SNS Network Technology Bhd (KL:SNS), Inari Amertron Bhd (KL:INARI), PIE Industrial Bhd (KL:PIE), NationGate Holdings Bhd (KL:NATGATE) and Kelington Group Bhd (KL:KGB). “We expect more supply chain shifts, potentially benefiting Malaysia due to its neutral position in the US-China trade conflict."

Meanwhile, top picks in the telecommunications sector are CelcomDigi Bhd (KL:CDB), TIME dotCom Bhd (KL:TIMECOM) and Telekom Malaysia Bhd (KL:TM) for potential upsides, and Maxis Bhd (KL:MAXIS) for its dividend yield.

As for the ringgit, Rakuten forecasts the Malaysian currency to strengthen to around 4.50-4.55 against the US dollar by end-2024, on the back of expected easing of interest rates in the US and European Union, along with improvements in the domestic investment climate. At the time of writing on Wednesday, the ringgit had risen 0.07% to 4.6733 against the greenback.